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DATE

Wednesday, May 6, 2026 at 5 p.m. ET

CALL PARTICIPANTS

  • President and Chief Executive Officer — Daniel A. Baker
  • Chief Financial Officer — Daniel Nelson
  • Vice President, Advanced Technology — Peter Eames

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TAKEAWAYS

  • Total Revenue -- $7.65 million, up 45% year over year and 23% sequentially versus the prior quarter, driven by higher product sales.
  • Product Sales -- Increased 6% year over year, with nondefense product sales up 34% and offset by a 79% decrease in defense sales.
  • Contract R&D Revenue -- Declined 19% year over year, primarily due to variability in defense- and government-related R&D.
  • Gross Margin -- 78% of revenue, compared to 79% one year ago, reflecting stable profitability even as product mix shifts.
  • Operating Expenses -- Decreased 19% for the fiscal year, led by a 26% reduction in R&D expense and a 5% decline in SG&A, mainly from completion of packaging projects and resource reassignment.
  • Interest Income -- Fell 6% due to a smaller marketable securities portfolio as bond maturity proceeds funded dividends.
  • Effective Tax Rate -- Decreased to 5%, down from 18% in the prior year, reflecting benefits from Advanced Manufacturing Investment Tax Credit on new equipment.
  • Net Income -- Rose 27% to $4.9 million, or $1.02 per diluted share, the highest quarterly earnings since three years ago; earnings covered the $1 per share dividend.
  • Profitability Metrics -- Operating margin of 62%, pretax margin of 68%, and net margin of 64% for the quarter.
  • Full-Year Revenue -- $26.3 million, up 2%; includes a 21% increase in nondefense product sales and a 67% drop in defense sales.
  • Full-Year Net Income -- $3.14 per diluted share, up from $3.11, driven by higher revenue and lower taxes, offset by decreased gross margin and other income.
  • Operating Cash Flow -- $16.7 million, increasing 16% year over year and exceeding net income by $1.5 million, indicating strong cash generation.
  • Inventory Levels -- Overall inventories decreased 5%, with declines in raw materials and WIP but higher finished goods to support demand; enabled by new equipment.
  • Capital Expenditures -- $2.19 million for the year due to completion of a two-year capacity expansion; fixed asset purchases expected to fall sharply next year.
  • Advanced Manufacturing Investment Tax Credits -- $1.07 million recognized; tax benefits expected to decrease materially next fiscal year as equipment purchases wind down.
  • Tax Refund Expectation -- Anticipates receiving a $1.3 million federal tax refund from 2026 R&D and manufacturing tax credits.
  • Capacity Expansion -- Major expansion completed this quarter, bringing new wafer-level chip-scale packaging capabilities and increased production precision.
  • New Products -- Launched wafer-level chip-scale sensors targeting medical and industrial applications, noted for miniaturization and precision.
  • R&D Initiatives -- Advanced MRAM for anti-tamper applications, next-generation medical sensors, and high-sensitivity TMR sensors are in development.
  • Distribution Update -- Added Semitech Incorporated as a new distributor for isolator products, aiming at electronics contract manufacturers and high-volume new designs.
  • Marketing Activity -- Exhibited at key industry trade shows focused on medical devices, sensors, robotics, and AIoT, generating qualified sales leads for future growth.
  • Long-term Product Support -- CEO Baker said, "we are committed to long-term support of our customers and our products," distinguishing the firm from manufacturers that discontinue low-volume parts.
  • Guidance -- While formal earnings guidance was not provided, management stated, "We see a continued bright outlook for product sales with favorable semiconductor industry conditions and our new products."

SUMMARY

Management underscored a pivotal quarter with record net income and operational momentum driven by a major capacity expansion and notable growth in core nondefense markets. Substantial cost discipline was evident as both R&D and SG&A declined, supporting margin resilience even amid deflation in certain revenue streams. Advanced equipment upgrades enabled the launch of new miniaturized sensors, directly targeting emerging sectors such as medical devices, robotics, and AIoT. Strategic distribution partnerships and differentiated long-term supply commitments were highlighted as key commercial levers enhancing future market access.

  • The full-year provision for income taxes reflected one-time items, including a $1.4 million reduction in estimated payments from prior-period R&D expense write-offs.
  • Deployment of precise spintronic materials deposition equipment allowed greater in-house control, enabling production of smaller, more sophisticated chip-scale devices.
  • Interest income exposure was flagged, as lower marketable securities resulted from funding dividend payouts.
  • Manufacturing expansion is now essentially complete, with capital expenditures projected to fall and major tax credits to taper off in the next fiscal year.
  • Contract R&D remains highly variable, but increases are expected in both government and defense-related projects in the coming year, per management comments.
  • Robotics business is developing, with sensors finding usage in end effectors and surgical robots; further pipeline details were provided anecdotally.
  • Management confirmed all earnings milestones were achieved without providing quantitative revenue doubling guidance, but expressed confidence citing increased capacity, inventory, and new product penetration.

INDUSTRY GLOSSARY

  • TMR (Tunnel Magnetoresistance) Sensor: A magnetic sensor utilizing quantum tunneling across an insulating barrier for detecting magnetic fields with high precision.
  • Wafer-level Chip-scale Packaging: An advanced semiconductor assembly process allowing the packaging of integrated circuits at the wafer level, minimizing device size and improving performance.
  • MRAM (Magnetoresistive Random Access Memory): Non-volatile memory technology based on magnetic storage elements for fast, durable data retention.
  • AIoT (Artificial Intelligence of Things): The convergence of artificial intelligence with the Internet of Things, enabling smart, autonomous systems at the network edge.
  • SG&A (Selling, General, and Administrative expenses): Overhead costs not attributable to manufacturing or R&D, including sales, marketing, and general company administration.
  • EMS (Electronic Manufacturing Services): Companies specializing in the design, assembly, production, and testing of electronic components for original equipment manufacturers and others.
  • End Effectors: The device at the end of a robotic arm designed to interact with the environment, often in precision applications such as medical and factory automation.

Full Conference Call Transcript

Daniel A. Baker: Replay will be available through our website nve.com and our YouTube channel, youtube.com/nvecorporation. All participants are currently in listen-only mode. After our presentation, there will be a question and answer session. After my opening comments, Daniel Nelson will present our financial results, Peter Eames will cover new products and R&D, I will cover sales and marketing, and then we will open the call to questions. Note we are using a new call-in service this quarter with a different phone number. The call-in number and PIN are in our press release and in the investor events section of our website.

We issued our press release with summary financial results and filed our Annual Report on Form 10-K in the past hour following the close of market. The press release has financial results for the quarter in addition to the fiscal year. Links to the press release and 10-K are available through our website, the SEC’s website, and X, formerly known as Twitter. Also, this afternoon, we posted a new sustainability report on our website. The new report replaces and supersedes our Task Force on Climate-related Financial Disclosures, or TCFD, report. The new report covers climate, employees, and governance, and we also highlight the positive impact of our products on people and the environment.

Please refer to the Safe Harbor statement on your screen. Comments we may make that relate to future plans, events, financial results, or performance are forward-looking statements that are subject to certain risks and uncertainties, including among others such factors as our reliance on several large customers for a significant percentage of revenue, uncertainties related to the economic environments and the industries we serve, uncertainties related to future sales and revenue, as well as the risks listed from time to time in our filings with the SEC, including our just-filed Annual Report on Form 10-K. Actual results could differ materially from the information provided, and we undertake no obligation to update forward-looking statements we may make.

We are pleased to report a 27% increase in net income for the quarter driven by a 34% increase in our core nondefense sales, which more than offset a decrease in defense sales. Daniel Nelson will cover details of the financials. Daniel?

Daniel Nelson: Thanks, Dan. Total revenue increased 45% year-over-year to $7.65 million. The increase was due to a 6% increase in product sales, partially offset by a 19% decrease in contract R&D revenue. The increase in product sales was due to a 34% increase in nondefense product sales, as Daniel A. Baker noted, partially offset by a 79% year-over-year decrease in defense sales, which can be volatile because of defense procurement cycles. Sales increased across most of our nondefense product lines and channels. Total revenue increased 23% from the prior quarter. We see a continued bright outlook for product sales with favorable semiconductor industry conditions and our new products. We have ample inventories to support increased demand.

The defense business has been steadily recovering over the past year, and we currently expect defense sales to increase significantly this fiscal year, the year ending 03/31/2027. Contract R&D is primarily defense- and government-related, and those revenues can also be uneven, but we currently expect contract R&D to increase this fiscal year. Gross margin for the quarter was 78% of revenue, compared to 79% for the prior-year quarter. Total operating expenses decreased 19% for 2026 compared to 2025 due to a 26% decrease in R&D expense and a 5% decrease in SG&A. The decrease in R&D was due to completion of some of our wafer-level chip-scale packaging activities and reassignment of some R&D resources to manufacturing.

The decrease in SG&A was primarily due to the timing of selling and marketing activities and reassignment of some SG&A resources to manufacturing and new product development. Interest income in the quarter decreased 6% due to a decrease in our marketable securities portfolio as proceeds from bond maturities helped us pay generous dividends. Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes, decreased to 5% for 2026, compared to 18% for 2025. The decrease was primarily due to Advanced Manufacturing Investment Tax Credit on equipment we put into service in the past quarter.

Net income for the quarter increased 27% to $4.9 million, or $1.02 per diluted share, from $3.89 million, or $0.80 per diluted share. The increase was primarily due to increased revenue, decreased operating expenses, and a decrease in our effective tax rate. This was our highest earnings since the chip shortages three years ago. Earnings more than cover our $1 per share dividend for the past quarter. Our profitability metrics for the quarter were strong. Operating margin was 62%, pretax margin was 68%, and net margin was 64%. For the fiscal year, total revenue increased 2% to $26.3 million from $25.9 million, as revenue increases in the past two quarters more than offset decreases in the first two quarters.

The increase in product sales was due to a 21% increase in nondefense product sales, partially offset by a 67% decrease in defense sales, which can be volatile because of defense procurement cycles. Our full-year tax rate decreased to 15% for fiscal 2026 compared to 16% for fiscal 2025. The decrease was primarily due to an increase in Advanced Manufacturing Investment Tax Credits, partially offset by a decrease in Foreign-Derived Intangible Income deductions. The fiscal 2026 provision for income taxes included $1.07 million in Advanced Manufacturing Investment Tax Credits. We expect such credits to decrease significantly in fiscal 2027 since we expect manufacturing equipment purchases to decrease significantly with the completion of our expansion.

Prior-year unamortized R&D expenses write-off allowed under the new tax law reduced our fiscal 2026 quarterly estimated tax payments by $1.4 million. We also expect a $1.3 million federal tax refund as a result of Research and Development and Advanced Manufacturing Investment Tax Credits claimed in 2026. Net income for the year increased to $3.14 per diluted share from $3.11 per diluted share. The increase was primarily due to increased revenue, decreased operating expenses, and a decrease in our effective tax rate, partially offset by decreased gross margin and decreased other income. For the year, operating margin was 60%, pretax margin was 68%, and net margin was 58%.

Cash flow from operations was $16.7 million in the fiscal year, an increase of 16% from the prior year. Cash flow was $1.5 million more than net income, showing the high quality of our earnings. Highlighting two cash flow items, inventories decreased by 5% due to increased product sales. Raw materials and WIP inventory decreased, but finished goods inventory increased. New equipment helped us convert raw materials and WIP efficiently. We have increased finished goods inventory to support increased product demand. Fixed asset purchases were $2.19 million for the fiscal year, which is unusually large for us. We have substantially completed spending on our two-year, multimillion-dollar expansion.

We put the last major equipment cluster for that expansion into service in the past quarter as planned. Peter Eames will discuss the new equipment. We expect fixed asset purchases to decrease significantly in 2027 with the completion of our expansion. Now I will turn the call over to Peter Eames, our Vice President of Advanced Technology, to discuss the new equipment and to cover new products and R&D. Pete?

Peter Eames: Thanks, Daniel. I will cover new equipment and R&D. We completed a significant expansion in the past quarter. New equipment in the past year has increased our capacity, increased our capabilities, and allowed us to do smaller and more precise wafer-level chip-scale package parts in-house. The new equipment allows extremely precise control of spintronic materials deposition to well within one atomic layer. This capability translates into more precise spintronic devices and expands our capacity with existing products. As Daniel said, we placed the new equipment into service in the past quarter as planned. It is building products; we are confident the new equipment will pay back with more revenue.

In the past quarter, the new equipment helped us fill orders for new high-performance TMR sensors. Our R&D strategy is to transition the world’s best technology into the world’s best products for high-value markets such as medical devices, electric and autonomous vehicles, advanced humanoid robotics, and highly automated fourth-wave factories using the Artificial Intelligence of Things. We have a continuous flow of new products as part of that strategy. In the past quarter, we announced a new wafer-level chip-scale sensor for medical and industrial applications. The new part is 0.65 millimeters on a side and, as you can see in the slide, the sensor is about one-third the area of the conventionally packaged version.

That allows smaller medical devices and especially precise robotics. In addition to the new sensor launches, in the past fiscal year we have also invested in advanced R&D initiatives with the potential to drive future growth, including next-generation MRAM for anti-tamper applications, next-generation sensors for hearing aids and medical devices, and extremely sensitive TMR sensors. Now I will turn it back over to Daniel A. Baker. Thanks, Pete.

Daniel A. Baker: I will cover sales and marketing. In sales, last week we announced a new distributor for our isolator products, Semitech Incorporated. They specialize in supporting electronics contract manufacturers, which is a good market for us. In the past quarter, we exhibited at Medical Design & Manufacturing West in Anaheim, California, for the first time. It is one of the largest and most influential business-to-business medical and advanced manufacturing trade shows in North America, with attendees from all over the world. Medical devices are an important market for us. Our product advantages for medical devices include small size, low power, and superb reliability.

At the show, we highlighted wafer-level chip-scale parts for miniaturization of implantable medical devices and surgical robots, MRI-safe and MRI-tolerant sensors for medical devices, high-sensitivity sensors for medical device navigation, and our best-in-class electrical isolators to ensure the safety of medical instruments. A video of several new demos is on our website and our YouTube channel. The show generated some good leads, and we believe our investment in shows will pay off in future sales. We are exhibiting at two trade shows focused on sensors this quarter.

Today and tomorrow, we are at Sensors Converge in Silicon Valley, which is North America’s largest event of its type, where we are focused on robotics and the Artificial Intelligence of Things, or AIoT. We have a strong benefit proposition for those markets, including small size for precise motion and smart-sensor edge computing for easy integration with AI. Next month, we will exhibit at Sensor+Test in Germany, which is billed as the leading international trade fair for sensors, measuring, and testing technology. In addition to robotics and AIoT, the German show is a chance for us to highlight our power conversion products for cars and charging stations.

In addition to trade shows under our own banner, some of our distributor partners will be at those and other trade shows for the spring trade show season. Now we would like to open the call for questions. We have switched to Google Meet for questions since Amazon Chime has been discontinued. The instructions have changed slightly. To ask a question from Google Meet, click the raise-my-hand icon at the bottom of the screen and unmute yourself to speak. From a phone, press star 6 to unmute. Please state your name and affiliation before your question, and to prevent background noise, please mute your line after asking your question. We will now open the call for questions.

Jeffrey Bernstein: Hey, Dan. It is Jeff Bernstein from Silverberg Bernstein Capital.

Daniel A. Baker: Hi, Jeff. How are you?

Jeffrey Bernstein: Nice to see the revenue growth this quarter. Congratulations on that.

Daniel A. Baker: Thank you.

Jeffrey Bernstein: I had a couple of questions. First, the call quality at first was not great, and I just want to make sure I got the numbers right on the increase in nondefense sales and the decrease in defense sales in the quarter?

Daniel A. Baker: Daniel, do you have those?

Daniel Nelson: Yes. Decrease in defense sales was 6% to 7%.

Jeffrey Bernstein: Okay. And this is Daniel Nelson?

Daniel Nelson: Yes, the decrease in defense sales was 67%, as per our prepared remarks, and the increase in product sales was 21%.

Jeffrey Bernstein: Twenty-one percent. Okay, that is great. And then, Dan, I had a question. You talked about getting new distribution in isolator, and I was wondering—your isolators work very differently than the photonic isolators that other people use. I would assume that they have a better mean time between failure, but also use less power and dissipate less heat, which are becoming very important in data centers. How applicable are they for the kind of power regimes that they are moving into in the new AI data center? And what do you think the power and heat dissipation savings would be from using your isolators?

Peter Eames: Hi, Jeff. This is Peter Eames. Great to hear from you again. I can try to answer this question for you. Typically, our power conversion products operate at higher frequency than our competitors, and this higher frequency produces improved efficiency. As you hinted, overall efficiency is very important, but it tends to be a small percentage, maybe a few percent. But again, this adds up to be a very important benefit. Data centers use a lot of power, and the small efficiency improvements can make a big difference.

Jeffrey Bernstein: Is Semitech the kind of group that is in a position to get you into some rack designs and things of that nature that go into the AI infrastructure?

Daniel A. Baker: You mean the new distributor, Jeff? Yes.

Jeffrey Bernstein: Yes.

Daniel A. Baker: They service EMSs—electronic manufacturing services—and so that is a lot of high-volume manufacturing for new designs. So that is one of the reasons why we thought it was a very good fit.

Jeffrey Bernstein: That is great. Then you guys put out some marketing materials during the quarter which talked about some end-of-lifing of parts by Texas Instruments and ADI, and I just want to understand what that was all about.

Daniel A. Baker: Well, unlike conventional semiconductor manufacturers, we are committed to long-term support of our customers and our products. So for us, it is not just a financial decision where we would cull a product if it does not have enough volume. We believe that if our customers design our parts in, they have an expectation that we are going to be in it with them for the long haul. So when some of the conventional semiconductor manufacturers discontinue parts, in many cases we can offer alternatives.

You are probably referring to one of our customer newsletters where we referenced some of those parts, some of those packages that were being discontinued by conventional semiconductor manufacturers, where we could offer a better part, better stability, and better supply—parts in stock.

Jeffrey Bernstein: That is great. That is what I was looking for. I will let somebody else chime in. Can you hear me?

Daniel A. Baker: Yes.

Analyst: Hi. This is Ethan from Principal. Congrats on the quarter. I am curious if we should be expecting next year, given the capacity effectively doubled as of the end of this quarter, whether we should be expecting revenue to more or less double as well. Thank you.

Daniel A. Baker: Good question, Itai. Our goal is to grow. We do not give, as you know, specific guidance, but we are optimistic. The global semiconductor market is improving. We have ample inventories. We have exciting new products. And, as you mentioned, we have quite a bit more capacity, so we see a bright future.

Analyst: That is helpful, thank you. And if I heard it correctly, the data center opportunity, we will call it zero today, is somewhat building. Can you describe or put any numbers to what you see the opportunity as a percent of the business, or when or how you see it shaping up over time? That would be helpful.

Peter Eames: I can jump in on this one, Itai. It is difficult to quantify something like this. We do not sell directly to data centers. We sell to subassembly manufacturers who build the systems in data centers. So it is difficult to directly connect data center growth to isolator volumes.

Analyst: Got it. And then maybe if you can discuss any anecdotal examples of pipeline or backlog specifically in robotics and how that has trended, that would also be great.

Daniel A. Baker: We have a number of customers that are in robotics and other emerging or high-growth markets such as energy conversion. Some of the places where our sensors get used in robotics are on what are called the end effectors, which are the hands or fingers of the robot, if you will, because we offer the smallest sensors available and much more precision. So for delicate operations—the sorts of things where our sensors shine—those would be delicate operations for end effectors, and also things like surgical medical robots that typically work on much smaller scales than other types of robots.

Analyst: Okay. Good luck, guys. Thank you.

Daniel A. Baker: Thank you. For questions from Google Meet, use the raise-my-hand icon; star six to unmute from a phone. Any other questions? Well, if there are no other questions, we were pleased to report a 27% increase in earnings for the quarter driven by a 34% increase in nondefense product sales as industry conditions improve and new products gain traction. We also completed a major expansion and deployed new equipment. We look forward to speaking with you again in July for our first quarter fiscal 2027 earnings call. A replay of this call will be available on the Investor Events page of our website, nve.com, and on our YouTube channel, youtube.com/nvecorporation.